Fast Food Franchises Complain Health Care Law Will Increase Their Costs

The new health care law includes a free rider provision that assess employers with 50 or more employees “that do not offer coverage and have at least one full-time employee who receives a premium tax credit, a fee of $2,000 per full-time employee (excluding the first 30 employees from the assessment). Employers that do offer coverage but have “at least one full-time employee receiving a premium tax credit” will have to pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee.

Under the law, businesses that don’t offer coverage and pay wages that can qualify an employee to receive tax credits will incur additional costs, and fast food establishments are already complaining about the “increased tab.” Franchisees estimate the new federal health care bill “could cost them as much as $55,000 per restaurant annually,” Chicago Business reports:

That’s a significant hit for franchisees, whose restaurants generate about $2.4 million in revenue and $300,000 in pre-tax profit, on average. And it could hamper the Oak Brook company’s campaign to persuade franchisees to remodel thousands of locations in the next five years. With their profits reduced, the restaurant owners are likely to raise prices and resist McDonald’s push to offer promotions and discounts to boost sales. […]

Mark Kalinowski, an analyst in New York at Janney Capital Markets, last month surveyed 16 franchisees about the health care bill and found the average expected cost was $55,000 per restaurant and the median response was $50,000. He estimates the new law would “wipe out” about 15% to 20% of profits.”

Part of this is likely overblown. Since the free rider/individual mandate requirement does not go into effect until 2014, nobody knows what the real impact of reform will be and some restaurants may find it cheaper to offer coverage to their employees in the exchanges or associations than pay the penalty. Secondly, having healthier workers serving and cooking fast food seems like a win-win for everyone involved, as does the possible increase in fast-food operating costs.


Fast food restaurants could conceivably respond to the higher costs by producing cheaper, even lower quality foods, or they could, as the article suggests, increase prices and stop renovating the space to attract younger children. If the latter is the case, then health reform could act as a “tax” that discourages consumption of the kind of food that increases chronic health care costs. That, seems to me, will be a sign that reform is working.